My CEO Life

Economic conditions aroun the world are tough.  The question is now what is the likely impact on small businesses and more importantly those start ups that are reliant on funding to maintain their growth.

To answer this question, I came across a presentation from Sequoia Capita on startups and the economic downturn.

Here are the key messages:

1. The recovery will be long – dont expect a quick turn around
2. There are new realities – raising money on high speculative valuations is a thing of the past and series B and C funding will be very very tough
3. Customer take up of businesses will be slower than projected
4. Expense cuts are a must
5. You have to become cash flow positive

The presentation then goes on to talk about specific actions businesses should take.

It is all about survival for your business. To do this, you will need to:

• Have a “must have” product
• The revenue model must be established – no time for speculation / experimentation
• You must be realistic and understand market uptake
• Cutomers must be able to pay for the service
• Cash is king
• Have to become cash flow positive

In cutting costs, they suggest the following areas be investigated:

• Decrease engineering head count
• Reduce the features of new products to those that are essential
• Measure and cut those marketing elements that are not working
• In sales and business development, are you getting the returns on any investment
• What does the sales pipeline look like and are they realistic sales
• Delay payments to manage cash burn
• What other costs in the business are just not essentia

I think their summary is great – here are the main points:

• Perform a quick situational analysis
• Adapt quickly
• Use a zero based budgeting approach
• Make cuts
• Review salaries
• Employ a heavily commissioned sales force structure
• Bolster balance sheets
• Become cash flow positive as soon as possible
• Spend every dollar as if it is your last

The best part of the presentation are pages 39 – 56 (Read it here)

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